Net Worth By Age (2025 Edition)

Introduction: The Power of Tracking Net Worth (0:00)

Brian: Net worth by age, 2025 edition.

Bo: Brian, I am so excited because this is literally one of our favorite shows that we get to do every single year because we love how powerful knowing your net worth and tracking it through time—how powerful that can be to your overall wealth building journey.

Brian: If you want to get a good holistic sense of where your financial life is going, this is what you need to be doing. This is the tool that will change your direction that will give you the personal accountability and let you build your great big beautiful tomorrow.

Bo: And so you may be wondering, okay, where do I stack up? How do I look relative to my peers? And we’re going to walk you through that today. But before we do that, you know what you ought to do? You ought to subscribe right now to the channel so that we know you are out there and as we put out new content you can make sure you stay aware of it so that you can do money better.

Brian: Well with that, let’s kind of jump right in. But why don’t you walk them through what exactly is a net worth?

What is Net Worth? (1:13)

Bo: Yeah, net worth quite simply is what you own—all of the things that you own—minus what you owe—all of the debts that you have. Well when you take the difference of those—what you own minus what you owe—you end up with your net worth. It basically tells you what are you worth when you factor in everything in your financial life. And a lot of times people ask us, Brian, they’re like, “okay, well I understand it conceptually, but what do you mean like when you say what do I own? What are you walking me through?”

Assets: What You Own (1:43)

Brian: Yeah, let’s talk about the actual specific—what do you own? These are your assets. When we’re talking about checking accounts, this is your money market, your cash reserves, all those type of things, your bonds, CDs if you’re doing the conservative stuff, and then retirement accounts—IRAs, 401(k)s, 403(b)s, your TSP plans—even other investment accounts. This is what we’re talking about. Plus HSAs, flexible spending accounts, and then of course we got to be talking about value of real estate. But this one we kind of have an asterisk on it because a lot of people spend a lot of their wealth and their resources on homes and we all know homes have gone up a lot recently. So Bo, how do we handle making sure that you’re not getting ahead of yourself on your home value?

How to Value Your Home (2:24)

Bo: Well, not only that—it’s easy you can go look at your checking account statement, your savings account statement, you can pull your 401(k) statement. It’s pretty easy to value those. But valuing your home is a little bit different and homes tend to be a little bit emotional and we want to be careful just like you said because of what’s happened with housing prices over the past couple years to not overinflate our net worth. So how do we value our homes on our net worth statements? We recommend valuing them at the purchase price that you paid for the house so that way your overall net worth is not inflated by the house price and the way that you actually see your net worth changing on your annual net worth statement is by the value of your mortgage going down, not by the value of the house going up. Because primary residence is not an asset that’s invested—it’s a use asset. You don’t actually get to recognize that until you sell the home. So we like valuing it at cost on your net worth statement.

Brian: Cost plus improvements. Now look, that doesn’t mean down the road if you sell the house and you actually do downsize, those assets are going to come to you. You can then turn them into liquid assets that you can count in your planning. But we just want to protect you from getting overconfident with your net worth on assets that you are actually keeping your family safe and sheltered instead of assets that you can actually eat and use to fund financial goals.

Liabilities: What You Owe (3:46)

Bo: So that rounds out the things that you own—the assets. Now let’s talk about what goes on the other side of your net worth statement. What goes on the liability side? And this is things like consumer debts—maybe this is credit card balances if you’re carrying a credit card balance or maybe it’s personal loans that are out there. Maybe it’s auto loans or it could be other types of debt like student loan debt, home equity lines of credit, mortgage balances—anything that you owe to someone else would go on your liability side of your net worth statement.

Net Worth Tools and Resources (4:17)

Brian: Now look, we have two opportunities for you. If you want the free stuff, go to moneyguy.com/resources. We can hook you up with a net worth template. But if you really want to fast-track your success, we’ve actually created a net worth tool. If you go to learn.moneyguy.com, we actually have a great net worth tool that will help you kind of have a dashboard. Not only are you going to see your account structure, you’re going to see the change over time, you’re going to see how much debt you’re paying down, you’re also going to get a chance to see—if you take into account your income versus the growth of your assets—how are those things correlated with each other. It’s a pretty powerful tool to use in knowing where you are in your financial journey.

Bo: And this isn’t something we just think that you guys should do. We actually use this very tool every single year when we do our annual net worth statements. We are using the exact same tool that you guys should be using and we love getting to watch and track the progress through time. Now we’ve already talked about your net worth can be a little bit inflated and it can change a little bit sort of depending on if you have real estate and how you value that. So for today’s show we want to focus primarily on financial assets. So what is your liquid net worth? Again, if you’re using our net worth tool, you’ll be able to see liquid net worth right there on the front dashboard every single year when you do this. Because your liquid net worth is the thing that can be influenced by small actionable steps. I can save a little bit more, I can build a little bit more, I can defer a little bit more. And so when you’re doing that, you are able to impact the direction of the trajectory that your net worth is on. So Brian, we have a little bit of a methodology we’re going to work through as we talk to you guys about where you stack up and where you should be relative to where you are in your financial life.

The New Income Multiplier Formula (6:07)

Brian: I love that we get to correct something that’s been kind of bothering me in this annual tradition. We love doing the net worth by age annually and one of the big updates this year is we’ve—in the past—shared with you Fidelity has what your income multiplier ought to be by each decade of your life. And I’ll be honest, it starts off really strong. I love it. You know, for a 30-year-old, a 40-year-old, you’re like “man, these are good goals to kind of put out there on yourself to hold yourself accountable.” But I have always struggled with in latter years when you’re actually trying to—when your assets are most important because you’re going to need this money to actually live off of—I feel like Fidelity’s numbers fall short because they’re just too small frankly. I mean if you think about for a 65-year-old, you need to have just 10 times your earnings. If you even applied the 4% withdrawal rate, that doesn’t even make sense.

Bo: Yeah, thinking about simple math—if you make $100,000 a year at retirement and you have 10 times that, you have a million dollars in a portfolio and you would draw 4%, that’s $40,000 a year where your income was $100,000 and you’re living off of 4% or $40,000. There’s a chasm there. We do not think that it’s a wonderful representation of how you should think about building wealth.

Money Guy’s 20X Rule (7:24)

Bo: So as we often like to do, we made some changes. We made a few adjustments to this and this is what we said: If we know that the 4% withdrawal rule is an acceptable rule to have portfolio longevity, that would be equivalent to 25 times your retirement income. If we’re going to have 4% withdrawal, that’d be the same as a 25x times your retirement income. Well we know that when we retire we don’t have to live off of 100% of our income. So we said if we just want to replace 80% of our gross household income—because now we don’t have to save anymore, we have more control over our income tax situation—and our goal is to have an 80% income replacement, then 80% of a 25 times multiplier would be a 20 times multiplier. So we said that if the terminal goal is—instead of Fidelity saying at 65 we want to have 10 times our annual income—the Money Guy method is we think that you should have 20 times your gross income at retirement. Well how do we back into the benchmarks along the way? And this is what we came up with: By age 30 we want you to have one times your annual income. By age 40 we want you to have three times—this is the same as what Fidelity says. But then when you get to 50, instead of only having six times your household income, we want you to have 6.5 times. By age 60, instead of eight times your annual income, we want you to have 13.7 times your annual income. And by the time you get to retirement or financial independence—if you’re assuming a retirement age of age 65—rather than having 10 times your annual gross income, we think that an appropriate goal would be 20 times your annual income.

Why Focus on Income vs. Expenses? (9:00)

Brian: What I love about this is look, we’re giving you a tool to use when you’re many many decades from actually retiring. So if you’re in your 20s, 30s, and even 40s, I love it because I know a lot of people out there go “guys, it’s retirement expenses that’s the most important.” Of course we agree with you and we use that when we stress test all of our clients’ retirement plans. But when we’re trying to come up with a tool, we have to figure out some metric to use. And what I like about this is we’re using 80% of income and it also takes into account—a lot of you said “hey you don’t have to do 80%, it could be 70% or even less, maybe even 60%”—but we know from our own research, go look, in those first few years you retire, your expenses might actually go up in retirement, not go down from even where you’re making because you’re active, you’re traveling, you’re doing all these great things. We want to build all that in. And I love that once again Money Guy—as we have built a better mousetrap so you guys can actually use this as a powerful tool.

The 20s: Mastering the Mindset (9:57)

Bo: All right Brian, so let’s jump in. Let’s talk about the different decades, the different ages and stages of life now that we have some metrics that sort of normalize for income. So let’s talk about the 20s. This is the decade that we titled “Mastering the Mindset” because in your 20s, if you can get your mindset right and the way that you think about money, there’s a really good chance that you can set yourself up for long-term financial success.

Small Incremental Decisions (10:25)

Brian: Oh man, this is the one because you realize you guys, when you’re in your 20s, you are a billionaire of time. So when we talk about small incremental decisions creating your great big beautiful tomorrow, you guys are absolutely loaded. The world is your oyster to conquer. So that’s why we say if you can master the mindset, that little tiny decision you make today can have those huge results because time is so on your side. So make sure that you’re leveraging that resource to the maximum.

Key Takeaways for Your 20s (10:55)

Bo: So let’s think about sort of some key takeaways in this decade. Like as I think about moving through my 20s and exiting the decade, what are some things that I want to make sure that I know? Well one, I want to know the power of my discipline. I want to understand that even small decisions at age 20—because I have so much time on my side—even the smallest decisions can have a huge impact down the road. So if I can make really good small decisions now and avoid very large bad decisions and be a disciplined financial individual, again, there’s a really good chance I’m going to set myself up for long-term financial success.

Brian: Well I mean the key thing—can you live on less than you make? And then do you have a plan to know what to do with your next dollar? Like the Financial Order of Operations—these are the things that will allow you to lean very heavily into this discipline which is one of the key ingredients to wealth building and maximize that moment.

Understanding the Power of Your Money (11:52)

Bo: And then the next thing you need to recognize—you need to understand the power of your money. So obviously I can make small decisions behaviorally, I can adjust. And if I make those small behavior adjustments and I take that money that I’m saving and I can apply it through time because time is working for me, it can be incredibly valuable. We have a deliverable—if you’ve not checked this out, you can go to moneyguy.com/resources—that just shows at different ages what can 1% more saving do for you. How much of your retirement income can 1% additional savings do? And you’d be amazed the difference for a 20-year-old saving 5% of their pay versus saving 10% of their pay can be huge by the time you get to retirement.

Brian: Well what I love about this—coming up with this deliverable—is that when we tell people that our goal for them is to save and invest 25% of your gross income, when you’re in your 20s you’re right out of the gates and you got your first job, you’re like “these knuckleheads, they don’t know what they’re talking about.” And we agree with you—not that we don’t know what we’re talking about—but it can be aspirational to say 25% in your 20s. So that’s why we wanted to create a resource for those of you who just said “hey, while you’re on this aspirational site, you’re just trying to get traction, you’re just trying to lean into discipline,” just a little bit—1% is more powerful than you probably realize. Just go use this resource and let’s show you practically how this could potentially play out.

Case Study: The Power of 1% Increases (13:20)

Bo: Let’s say that you graduate at 22 and you start with a $50,000 salary and you assume that you just get a 3% annual pay raise each year until you’re 30. So starting at 22, you say “you know what? I can’t save 25% like the guys say, but I can save 15%.” Starting at 22, and then as I get that 3% pay raise every year, I’m just going to increase my saving by 1%. So my pay goes up 3%, my savings goes up by 1%. So this year I save 15% and the next year I save 16% and the next year I save 17% and so on. Well if we just assume an 8% annualized rate of return, by the time you get to the end of this decade—by the time you get to 30—you yourself will have saved about $97,500. But because of compound interest working for you, your portfolio would be worth $136,000. Again, this is a 22-year-old that started at zero making $50,000. By the end of this decade is already in six-figure land. But that’s only part of the story. This only tells a little bit of the story because remember, one of the greatest resources that 20-year-olds have is time on their side. In this example, if this person said “you know what? I’m going to stop saving at 30. I’m only going to save from 22 to 30, then I’m not going to save anymore”—just the work that you did in your 20s, that $136,000 that you saved by age 30 has the ability to turn into $2.2 million by the time you get to age 65 without saving another dime. If you can harness and you can recognize the power of your money in this decade, you can change your future.

Key Takeaways: Know the Power of Your Time (15:00)

Brian: Yeah, and this is—I love showing how these little 1% decisions really do lead to multiple seven-figure rewards. And that’s why let’s talk about some key takeaways because you need to know the power of your time and also the power of your discipline because it is just so powerful. Don’t be jealous of your co-workers or your boss that’s in their 40s. They’re jealous of you for all the time that you have on your side.

Bo: That’s right. And if you—again if you want to see just an exercise of how powerful that time can be for you—we want you to go to moneyguy.com/resources and play with our wealth multiplier tool. You can actually put in at your age how much money you’ve saved up or how much money you’re going to save this year, how much money you want to put away, and you can see the power that time has over the decisions that you make. So if you can master the discipline and you can master the knowledge of your money and you can master the knowledge of your time and you can combine those three ingredients, you can set yourself up and you can begin building to a great big beautiful tomorrow.

Are You Ahead of the Curve? End of 20s Benchmarks (16:06)

Brian: And that’s a great segue into kind of close out this decade of figuring out—are we ahead of the curve, behind the curve, or right where our peers are? And if you think about the fact that we know net worth in your 20s—what does the typical American look like? And we’ve done the research and we said “hey, for a 30-year-old”—because remember you’re coming to the end of your 20s—you ought to know exactly where 30-year-olds are. The median gross household income for a 30-year-old is $54,960—so right under $55,000. The median financial assets unfortunately is right under $22,000. But that’s not good enough. We want you guys to be aspirational. We’re both united with what Fidelity’s goal as well as what the Money Guy new and improved version says and we want you to be at one times your income as you close out your 20s. So if you want to know if you’re ahead of your peers, it’s right around $55,000.

Bo: That’s exactly right—one times your annual gross household income by the end of this decade. And I hope that what you’ve seen through the case study is that this is attainable, this is possible. It may seem difficult at 22, 23, 24, but if you can make those small decisions and you can stay consistent, there’s no reason that you cannot be on track at the end of the 20s. And our goal for you—$55,000 or one times your annual income. The median financial household—the median American in your stage of life—has only accumulated financial assets of $22,000. Already well behind right here in the very first decade.

The 30s: The Messy Middle (17:44)

Brian: So Bo, I want to transition us to the next decade and you resemble this decade. We love to affectionately call the 30s the “messy middle.” This is one—guys, if you’re out there, if you’re a mom, if you’re a dad and you got a bunch of little tricycle motors running around and they’re creating chaos—we just in our content meeting today, Bo, you had a few phone calls where your kids—they’re like the Jetsons, they have like these watches that can call you guys and you’re getting these things. So you are living this life. Let’s walk people through what it’s like to be in your 30s in the messy middle.

Bo: Yeah, what’s so hard at this decade in this stage of life is that it becomes so easy to put your financial life on the back burner. At the end of the day or even in the middle of the day, you’re focusing on the fire that is immediately in front of you. I’ve got to parent, I have job responsibilities, I’m getting pulled in a thousand different directions, doing a thousand different things, putting out a thousand different fires. And one of those fires today might not be financial independence. It might not be putting money in my 401(k). It might not be getting my emergency fund funded. So it’s very easy in this decade to put the important stuff on the back burner because it doesn’t seem like it’s important right now. Well if you can flip your mindset and you can say to yourself “okay, I have a plan in place and I’m just going to continue executing this plan even though life gets crazy and even though there are explosions going on all around me”—if I can stay the path, then there’s a very good chance I’m going to make it through this messy middle. And when I get to the other side of it, I’m going to look back and say “holy cow, how did we cover that much ground? How were we able to build that much wealth even in the midst of a decade that was so chaotic and so crazy and so wild and pulling me in so many different directions?”

Key Takeaways for Your 30s (19:39)

Brian: So let’s get into these key takeaways for the 30s. The first thing we wrote down was we want you to aim for simplicity. Bo, there is going to be a lot of noise, distractions, complexities that are going on in your life. You mentioned a few—the job, the family, the mortgage. All these things are going on. Guys, if you lose your focus on thinking about giving a little bit of today for your future self, you’re making a huge mistake because you still in your 30s have lots of time on your side. So I don’t want you to let this be a decade that’s lost. Be intentional with how you’re using every bit of that powerful resource of time.

Bo: I love that you said intentional because you have to actually aim for simplicity. Because if you don’t—the thing that you don’t have to aim for is complexity. It will find you as you get older, as your financial life changes, as you move through your financial journey. Complexity naturally finds you. You wake up one morning and say “when did I end up with all these things? When did I have all these bills? When did I end up with my tax return being so complicated?” You don’t have to seek those things out. They will find you. So as complexity is finding you, if you can try to be simple, if you can try to keep a simplistic mindset, there’s a really good chance that you will stave off the complexity at least to some extent.

Make Good Habits Automatic (20:59)

Bo: There’s some things you can do to shoot for simplicity. You talk about this all the time, Brian. One of the things you say is “how do I make the good—what is it?” I talk about make the good habits as easy as possible—make them automatic—and make the bad habits as hard as possible through scarcity.

Brian: Because like I said, if you’re doing automatic savings and investments, you’re making those good habits as easy as possible. If you’re doing forced scarcity—meaning every time you get a pay raise you’re already going ahead and putting that money to work and it’s going into good assets, it’s going into investments—it’s also going to have the good behavior of keeping the bad habits as hard as possible because you’ve already put—every dollar has a purpose in your army of dollar bills. So take advantage of those tools and those good behaviors as you’re going through this process.

Be Intentional About Your Savings Rate (21:44)

Bo: And another key takeaway in your 30s is—again, 30s the theme is intentionality. You have to aim for simplicity. You also have to be intentional about your savings rate. You had a lot of grace in your 20s that “maybe I can only save 10%, maybe I can only save 15%.” But by the time you get into your 30s, as you’re working through the messy middle, time is slowly not being on your side. We’re still on your side, but it’s different than your 20s. So you have to be intentional about hitting that 25% savings target because it can be so valuable for you over the long term.

Brian: Yeah, this is when the intersection of math and goals is—because we told you aspirationally saving and investing 25% in your 20s, it’s tough. So that’s why you actually get away—and we’ve got the math to prove it. You know, if you look at how much you should save—anybody who started in their 20s, yeah maybe 15% is good enough, definitely 20% is great. But you notice the typical American—unfortunately we are procrastinators, we wait until our 30s—and that’s why you have to get on that saving and investment train ASAP because if you go look at this resource at moneyguy.com/resources, it’s very important that in your 30s you do reach that 25%. Otherwise you might even have to put more weight on how much you have to save and invest for the future if you put this off too long. But again, in your 30s, time is still on your side if you can be intentional.

Case Study: Starting at Different Ages (23:12)

Bo: Let’s assume for a second that you want to retire and your goal is to replace 80% of your pre-retirement income and you assume a 4% withdrawal rate and your wages only grow by 1.5% a year. But you can choose to save 25% and let’s just say that conservatively you can make 6% on your assets over time. Well even if you don’t figure this out until age 30 but you begin saving 25%, you will likely be able to reach financial independence by the time you get to age 59. That’s replacing 80% of your pre-retirement income by 59—that’s still early retirement even if you don’t discover this until age 30. But you can be intentional about saving 25%, you can still put yourself on track for normal retirement by age 64. And then even if you’re a late bloomer—maybe your 20s and 30s look differently than you thought—but if you can adjust course and you can get serious and you can be intentional and you figure this out starting at zero at age 39 but you save 25% diligently from the time you’re 39 all the way until the time you’re 68, you could still hit a realistic retirement date before age 70 even waiting till almost 40 years old to get started.

End of 30s Benchmarks (24:27)

Brian: So let’s close out this decade of the 30s and I want people who are watching this entire episode or maybe you’re watching the highlight of just your 30s to notice—the further we go, the further the separation is going to be. Because people unfortunately—the typical American—is not utilizing the most valuable resource which is time. And the longer you defer, you procrastinate making small incremental decisions, you’re going to notice a big spread from what Americans will need for retirement and what they actually will have built up and saved. So a perfect example, Bo, we know that for a person who’s exiting their 30s and they’re entering their 40s—a 40-year-old—the household income, the median household income in America is $85,780.

Bo: Unfortunately, the median financial assets for the typical household of someone in their 30s in America, it’s only $34,000. Remember by the time you got to the end of your 20s you’re supposed to have one times your annual income saved up, and here most folks by the end of their 30s, they’re not even halfway to where they were supposed to be at the end of their 20s decade. So if we again apply the Money Guy formula—and this aligns with Fidelity—our goal is by the end of your 30s we want you to have three times your annual household income. And if we just assume the median household income in this country of $86,000, by the time you get into your 30s you should be over a quarter of a million dollars of investable net worth. Where you should be is a quarter of a million. Where most Americans are is only $34,000 in financial assets. Again, there is a big chasm between the median American and where the financial mutant American should be.

The 40s: A Fork in the Road (26:23)

Brian: Yeah, they’re turning time against them instead of using it as an ally and making the journey as easy as possible by letting your army of dollars do more heavy work than your back, your brain, and your hands. Don’t sleep on letting that time and that discipline work for you.

Bo: All right Brian, let’s talk about the next decade. Let’s talk about the 40s. This is often described as sort of a fork in the road. This is a bit of a turning point where you have one of two places you can go. You can either celebrate the decisions that you have been making and you can readjust and think about “can I make some favorable adjustments?” Or you have to wake up and say “uh-oh, I’m in a bad spot. It is now time to correct course and figure out what the rest of my life is going to look like.”

Choosing Your Path (27:11)

Brian: Yeah, I also think this is—if you’re looking at choosing your path—I mean don’t take a backseat. I think a lot of people have not taken an active role in their financial life and I think that you see it in those median numbers of where investable assets are for Americans based upon where their income is. I think a lot of people will just sleep on saving and investing for the future. They’re not conquering that key concept of living on less than you make and actually taking that margin and putting it to work for you for the future. So you get to choose your path because here’s the thing: as you enter your 40s, you’re not old. You’re just hopefully a little wiser. You got a little life under your belt and you’re now going to get serious about really waking up and realizing what the power of today and saving for the future can actually do for your future and not sleeping on this at all.

Bo: And then the other thing—think about maybe you have been making the right decisions and you are now entering into that point where you are at the boiling point and your assets are doing something pretty incredible. Well now you not only need to think about how you’re saving, you need to think about, “Am I optimizing for tax efficiency? Do I understand that the way I’m building my assets are actually building in the most efficient way possible?”

The Three Tax Buckets (28:20)

Bo: Brian, we talk all the time about as you build towards financial independence we want you to have three distinct tax buckets. Talk about those three tax buckets.

Brian: I like it because even when we talk about Financial Order of Operations, when we get to step seven—hyper accumulation—this is the first big step that talks about how you’re actually going to use this money in retirement. It’s not just about getting all the tax savings. And this is a great point that we always talk about—these three buckets—is because think about this: We love Roth. Everybody loves Roth because tax-free growth. That’s like our favorite child—you’re not supposed to say that out loud I think—but everybody loves Roth assets because they are growing. That’s your Roth 401(k), your Roth 403(b), even 457s can be Roth accounts, your Roth IRAs. Even health savings accounts have a lot of tax-free growth opportunities in there. But then there’s tax-deferred. Now look, we like them because you know what? Tax-deferred typically is—now I know the government’s trying to change this, give opportunities to your employer to do more tax-free, you just have to pay the taxes on your W-2—but historically that free money, that’s step number two of the Financial Order of Operations. That free money, the profit sharing and all those things that the employer puts in your retirement account for you—that is coming in traditional, meaning the employer is taking a tax deduction and then giving you this benefit. So you’re going to pay income taxes down the road on all that compounding growth. It’s just tax-deferred, it’s not tax-free. That’s your traditional 401(k), your traditional 403(b), those 457s, and of course traditional IRAs. And then the last one we always like to call this bucket kind of a bridge bucket—it’s your after-tax. It’s just your taxable brokerage account. That could be individual, it can be a joint account, it can be structured however you want it. But this is assets that are going to be tax-favored meaning dividends, capital gains. But they are going to have taxes every year, but it’s going to be easier to get access to these after-tax assets than the tax-deferred or tax-free because you also don’t have to be 59½ to get there. You got to make sure you understand the power of each of these buckets so you can put your assets in these different buckets and maximize each one of the things that they’re really good at, but also minimize the things or limitations that some of these account structures might have as well.

Case Study: Tax Bucket Optimization (30:26)

Bo: And we get this question all the time—”okay, so why does this matter? I mean I hear you guys talk about this but practically why does this matter?” So we thought it’d be really valuable to kind of walk through a very simplified case study. Let’s look at two individuals. We have Inefficient Ivan and we have Manny the Mutant. And let’s assume they’ve both been fantastic savers and they’ve both built up incredibly healthy portfolios and they live a lifestyle where in retirement they’re going to have about $200,000 of retirement income flowing into their households. Well Inefficient Ivan, because he didn’t think about the three buckets and he didn’t build up tax diversification, all of his income in retirement comes from Social Security and the rest of it comes from his 401(k) or his IRA—he pulls it from tax-deferred accounts. Manny the Mutant on the other hand did think about the three buckets and was a financial mutant. So when he goes to pull out his retirement income, he gets to pick and choose which buckets he pulls from. So when you think about Inefficient Ivan’s buckets, all of it’s going to be taxed at ordinary income. So Social Security—even though it might not all be taxed—it’s all going to be taxed at ordinary income rates. Manny the Mutant however, he’s going to have the same amount on Social Security going to be taxed at ordinary income rates, but he’s only going to pull a small amount out of his tax-deferred accounts and then he’s going to use after-tax withdrawals from his regular brokerage account—that third bucket—which gets favorable tax treatment at long-term capital gains rates as you have transactions. And then when he pulls money out of his Roth IRA or out of his HSA, that’s completely tax-free. So he has three different unique and distinct tax buckets that he pulls out of. Okay, so again, the question is why does this matter, guys? Why is this important? Well if we think about Inefficient Ivan, because of the way his income comes to him, he’s in the 22% marginal tax bracket. That means that on the next dollar he pulls out, he pays 22% federally. Well because we have a progressive tax system, he fills up the lower buckets—or fills up the lower brackets—and then moves to the next, moves to the next. Ivan’s effective tax rate on $200,000 of retirement income is about 13%. Marginal rate of 22% but he’s paying effectively 13%. So on that $200,000 of retirement income, he’s paying about $26,000 of taxes. That means that the take-home pay he actually gets to use for retirement is about $174,000 with about $26,000 going to the government.

Bo: Okay, so how different does Manny’s situation look because he approached this differently? Well Manny, because his only ordinary income is from Social Security and from the pre-tax deferrals or pre-tax bucket, his marginal tax bracket is only 12%. So when he works through our progressive tax system, he only pays a 2% effective tax rate. So the total taxes due on his $200,000 retirement income is only $4,000. Instead of Inefficient Ivan who’s able to spend about $174,000 because he loses $26,000 to taxes, Manny can spend $196,000 in retirement because he only loses $4,000 to taxes. If you can build your tax buckets, you get to pick and choose what your tax situation in retirement looks like.

Roth Conversions and Tax Planning (33:38)

Brian: What I love about this is it shows that legally—I mean legally—this is permitted by law, it’s encouraged by law. You get to legally manipulate how much you pay in taxes. And by the way, we did an example of somebody who’s just coming into the retirement phase. What we haven’t even covered here—and I see it all the time—Social Security full retirement age is typically around 67. Required minimum distributions don’t even kick in until age 75 for a lot of the population out there. That still gives you a lot of time that you can turn a lot of those tax-deferred assets into Roth assets through Roth conversions and manipulate what you’re going to pay and avoid the tax bomb. We see this all the time. If you find yourself in this situation, we’d encourage you—please reach out to us. Let us maximize—you’ve only got one retirement. We’re dealing with hundreds if not thousands of retirements and we want to help you navigate this so you don’t have regret because this is a huge difference, Bo. It really is.

End of 40s Benchmarks (34:36)

Bo: All right, so let’s talk about where you should be as you exit your 40s. We know that the median household income for someone in their 40s is about $101,300 per year. And yet the median financial assets for the average American household is only about $56,000.

Brian: Makes me so sad.

Bo: It really does. We were tracking with Fidelity through the 30s, but this is where it changes a little bit when we get to the 40s. We think that you should have by the end of this decade 6.5 times your annual income saved up in investable net worth. So if we just take 6.5 times the median household income of $111,000, this person who earns the median household income should have right under $650,000 of investable net worth by the time they get to the end of their 40s. The median financial American hasn’t even made it to $60,000 yet.

When Do People Become Millionaires? (35:30)

Brian: Well you see—I mean they’re not—the typical American’s not even 10% of this number. And I want to put some more cold water because I know my financial mutants are watching this and they’re saying “hey, this is based off of medians. I’m not average, I’m not the basic person.” That’s why it is in your 40s—it’s the typical decade that you see people cross into seven-figure status. The typical millionaire is minted freshly in their late 40s right around age 49 after saving and investing for 28 years. So it is one of those things that if you really want to challenge yourself to be the best, try to shoot for having those seven figures in your 40s.

The 50s: Setting the Glide Path (36:06)

Bo: All right Brian, let’s talk about the next decade. Let’s talk about the 50s. This is where you can kind of set the glide path. You’re now beginning to figure out “okay, what does financial independence look like? I can now see the runway, the landing gear is down. How do I now have a smooth landing into retirement, into financial independence?”

Asset Allocation and De-Risking (36:25)

Brian: Yeah, we created an illustration. Now look, this is just an example. This is not what we’re recommending because we just went and pulled the glide path off of an index target retirement fund because we just want to show people—this is what happens. And you’re like “why is asset allocation even necessary? I see so many people on social media saying ‘VOO for life,’ you know, they’re just going to stick to the index fund and then they’re just going to pull a little bit out each year.” The problem is as you get older, you’re going to notice a big difference once you’re living off these assets and you’re a financial mutant and now you need to de-risk. You need to take down because once you’re in the maintain wealth phase—not make wealth phase—we’ve got to start thinking about other contingencies and risks that are out there. And I want you to have—if you got into a situation where the market’s getting beaten up, if it’s down 20-30%—I don’t want you to have to wait the three to five years for that market to recover to get your money because if you’re pulling that money off while it’s beaten up, that’s a horrible decision. So we have to kind of manage that. I want you to plan accordingly for your financial life as well once you reach this decade.

Know Your Number (37:28)

Bo: I love you said “plan accordingly for your financial life” because a glide path is a great illustration but ultimately you will need to consider some things on how you adjust your portfolio and your strategy. What is your timeline to new financial goals whether it be financial independence or career 2.0? What is your unique risk tolerance or risk capacity? And when do you actually think that you’re going to retire? And one of the ways that you answer that is do you know what your number is? You’ve been focusing on accumulate, accumulate, accumulate. Do you actually know where the finish line is? Well if you don’t, we have a great tool that you can use out at learn.moneyguy.com called the Know Your Number course because you’ve been doing the hard work of building. We want you to be able to clearly define what is it I am building towards and am I on track to do that? Or if not, what corrective actions do I need to take in my 50s so that I can move to that ultimate finish line? So if you’ve not had a chance to check out the Know Your Number course, go to learn.moneyguy.com and check that out.

End of 50s Benchmarks (38:30)

Brian: So Bo, kind of close out the 50s. This decade is a very important one. We see the median gross household income for Americans is—it’s actually six figures now, we’re close to $111,000 a year. But somehow there’s a disconnect even when people are in their peak earning years. You see the median financial assets for people who’ve reached this age 60—close out their 50s—is under $70,000. If you applied a 4% withdrawal rate on that or even a 5% withdrawal rate on that, you’re going to see why people just don’t get beyond the social safety net. What do we think people ought to have at this stage?

Bo: Yeah, by the time you get to your 50s, we think that you should have 13.7 times your annual income saved in financial assets. So if you’re the median household income earning about $111,000 a year, by the time you get to age 60—by the time you get to the end of your 50s—your portfolio should probably be somewhere around a million and a half. That is a far cry from the average 50-year-old household that has less than $70,000 saved up in investments.

Don’t Fall Into a Trap (39:37)

Brian: Yeah, and here’s the thing. I love that we give this guidance or at least these benchmarks for you to use for comparison sake to know if you’re ahead of the curve, behind the curve, or right where your peers are. But it’s not good enough if I’m being honest with you. You know when you get to your 50s and you’re trying to think about you’re about to land that airplane of your financial life and you want to know—what are you not thinking about? What are your blind spots? I think this is the point where like I said, you’ve only got one retirement. You need to bring in somebody who’s done this hundreds of times so you don’t fall into a trap and make a mistake. And that’s why I would strongly encourage—we stress test a lot of our clients because using benchmarks, using back-of-the-napkin plans is great for getting you motivated and going. But if we have to put the “personal” in personal finance to make sure you’re not screwing something up or you don’t have this big gaping hole of risk sitting out there in your financial life—this is why we encourage people consider taking the relationship to the next level and even going out to moneyguy.com/become-a-client so you can figure out what the next steps are in working with us.

Closing: Own Your Financial Future (40:41)

Bo: We love doing our net worth statements every year. We think it’s an amazing financial tool to show you where you are today and then if you can track that through time, it will show the impact of the decisions you’re making. Because we believe that if you can take control of your financial future, you really can have a great big beautiful tomorrow.

Brian: And I love that we get to share all this abundance and that’s why we call it the abundance cycle. We give you all this free information, load you up. We know if you apply this, you let it grow over time, you will reach your personal dreams and you’ll reach success beyond your wildest imagination. The big thing I want everybody to know is you got to own your financial future or it’s going to own you. So take this seriously. And by the way, don’t forget to subscribe. We’ll keep loading you up with all this abundance and let you be the best version of yourself. I’m your host Brian Preston, Mr. Bo Hanson, Money Guy team out!